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The Green(ish) Case Against Wind Power Subsidies

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As an energy source, wind power looks just about perfect: it creates no greenhouse gases, requires pulling nothing out of the earth, and relies on an inexhaustible resource. Among the trendy forms of renewable power singled out for praise from many environmentalists, it is the most practical by a long shot. But wind power, for all its genuine merit, shouldn't get government subsidies any more than oil or gas. The biggest of these subsidies, the wind production tax credit -- set to expire at the end of this month -- is a good example of an outmoded government policy that's ready for the trash-heap. The credit is quite simply bad tax policy, maladaptive for energy purposes, and a significant contributor to a subsidy "arms race" in energy.
S
ome background first. The wind production tax credit, which has existed with a few brief lapses since 1992, generally offers a 2.2-cent per kilowatt hour tax subsidy for wind and a few lesser-used forms of trendy "green" energy. The credit officially costs about $1 billion a year. Because it allows for "carry forward" and a variety of other fancy tax accounting moves, furthermore, the actual value to companies with sophisticated tax planners is probably bigger than advertised.

And this is where the problems begin. Even if one grants that the goal of "more wind power" is an intrinsically good one, the production tax credit is simply not a very effective way to achieve it. Any wind facility that generates any power and sells it to the public can claim the credit. This includes facilities that would be built and generate power without the credit. Almost any government subsidy will displace some private activity that would happen without the subsidy, but a tax code subsidy with no application process as such seems particularly likely to do just that. If policymakers are truly intent on spending $1 billion (or any other amount) to advance wind power, they would probably do better to provide grants to the most promising projects. Insisting that the subsidy is somehow a "tax cut," furthermore, fails to draw the distinction between broad tax code features like the mortgage interest deduction that conservatives should rightfully seek to cancel out and narrow favors granted through the tax code.
Like any subsidy for a complicated technology, furthermore, the wind production credit may well lead to maladaptive policies. Nuclear power, which has received the most subsidies of any energy source, has a small market share in part because large subsidies lead to the deployment of reactor technologies before they were truly commercially viable. The same thing could well happen to wind power if subsidies continue to shield it from market forces.

Even worse, maintaining the wind tax credit makes it much more difficult to launch a principled campaign against expensive and environmentally destructive subsidies for fossil fuels. Once the government starts subsidizing one energy source -- even a "good" one like wind -- it will often end up offering subsidies to far less environmentally attractive forms of energy technology.

The fact is even without significant subsidies, onshore wind power is already cheaper overall than nuclear, biomass, and "clean coal" technology. Only natural gas and "greenfield" hydro projects (which would be built in Alaska and Canada) have clear cost advantage. That advantage (almost a third) is big enough that it's hard to imagine anything making wind compete with them.

Wind power is a good idea and America's future power portfolio will include more wind turbines. More wind power will may reduce the consequences of climate change. But the subsidy itself really ought to go.

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